Special Report: Tax Reform 2005

CCH Tax Scenarios

Scenario 1

Unmarried parent and one child under age 17, $20,000 in wages.

	2005 Present Law	Reform Proposal

Adjusted Gross Income	20,000	20,000
Standard Deduction	(7,300)
Personal Exemptions	(6,400)
	--------	--------
Taxable Income	6,300	20,000
Regular Tax	630	3,000
Nonrefundable Child Credit	(630)
Refundable Child Credit	(370)
Earned Income Credit	(1,762)
Family Credit		(3,000)
Work Credit		(1,069)
	----------	--------
Refund	(2,132)	(1,069)

Taxpayer would have a $1,063 smaller refund under the new proposal.

Decrease in refundable child credit	($370)
Difference in amount of earned income credit and work credit	(693)
	-----------
Decrease in refund	($1,063)

Scenario 2

Unmarried parent and one child under age 17, $32,000 in wages.

	2005 Present Law	Reform Proposal

Adjusted Gross Income	32,000	32,000
Standard Deduction	(7,300)
Personal Exemptions	(6,400)
	--------	--------
Taxable Income	18,300	32,000
Regular Tax	2,223	4,800
Nonrefundable Child Credit	(1,000)
Family Credit		(4,300)
	--------	--------
Tax After Credits	$1,223	$500

Taxpayer would have a $723 decrease in tax under the new proposal.

Tax savings due difference between standard deduction and exemptions and family credit	$2,245
Tax increase due to repeal of child credit	(1,000)
Tax increase due to repeal of 10% tax bracket	(522)
	--------
Tax savings under new plan	$723

Scenario 3

Married couple with two children under age 17. Both taxpayers work and earn $50,000 in wages.

	2005 Present Law	Reform Proposal

Adjusted Gross Income	50,000	50,000
Standard Deduction	(10,000)
Personal Exemptions	(12,800)
	----------	--------
Taxable Income	27,200	50,000
Regular Tax	3,350	7,500
Nonrefundable Child Credit	(2,000)
Family Credit		(6,300)
	--------	--------
Tax After Credits	$1,350	$1,200

Taxpayer would have a $150 decrease in tax under the new proposal.

Tax savings due difference between standard deduction and exemptions and family credit	$2,880
Tax increase due to repeal of child credit	(2,000)
Tax increase due to repeal of 10% tax bracket	(730)
	-------
Tax savings under new plan	$150

Scenario 4

Married couple with two children under age 13. Both taxpayers work and earn $50,000 in wages. The couple incurs $6,000 in child care expenses.

	2005 Present Law	Reform Proposal

Adjusted Gross Income	50,000	50,000
Standard Deduction	(10,000)
Personal Exemptions	(12,800)
	--------	--------
Taxable Income	27,200	50,000
Regular Tax	3,350	7,500
Child care credit	(1,200)
Nonrefundable Child Credit	(2,000)
Family Credit		(6,300)
	--------	--------
Tax After Credits	$150	$1,200

Taxpayer would have a $1,050 increase in tax under the new proposal.

Tax savings due to difference between standard deduction and exemptions and family credit	$2,880
Tax increase due to repeal of child care credit	(1,200)
Tax increase due to repeal of child credit	(2,000)
Tax increase due to repeal of 10% tax bracket	(730)
	-------
Tax increase under new plan	($1,050)

Scenario 5

Single individual with $50,000 in wages.

	2005 Present Law	Reform Proposal

Adjusted Gross Income	50,000	50,000
Standard Deduction	(5,000)
Personal Exemptions	(3,200)
	--------	--------
Taxable Income	41,800	50,000
Regular Tax	7,115	8,600
Family Credit		(1,650)
	--------	--------
Tax After Credits	$7,115	$6,950

Taxpayer would have a $165 decrease in tax under the new proposal.

Tax increase due to difference between standard deduction and exemptions and family credit	($400)
Tax savings due to increase in 15% bracket	930
Tax increase due to repeal of 10% tax bracket	(365)
	-------
Tax savings under new plan	$165

Scenario 6

Single individual with $50,000 in wages. Taxpayer also has $2,000 in charitable contributions.

	2005 Present Law	Reform Proposal

Adjusted Gross Income	50,000	50,000
Standard Deduction	(5,000)
Personal Exemptions	(3,200)
	-----------	-----------
Charitable contribution deduction		(1,500)
Taxable Income	41,800	48,500
Regular Tax	7,115	8,225
Family Credit		(1,650)
	-----------	-----------
Tax After Credits	$7,115	$6,575

Taxpayer would have a $540 decrease in tax under the new proposal.

Tax increase due to difference between standard deduction and exemptions and family credit.	($400)
Tax savings due to increase in 15% bracket	930
Tax savings due to charitable contribution deduction	375
Tax increase due to repeal of 10% tax bracket	(365)
	--------
Tax savings under new plan	$540

Scenario 7

Married couple with 2 children under the age of 17, $100,000 in income; $15,000 in itemized deductions including $9,000 in mortgage interest, all of which qualifies for the home credit, $4,500 in state and local taxes, $1,500 in charitable contributions.

	2005 Present Law	Reform Proposal

Adjusted Gross Income	100,000	100,000
Itemized Deductions	(15,000)
Personal Exemptions	(12,800)
	--------	--------
Charitable contribution deduction		(500)
Taxable Income	72,200	99,500
Regular Tax	11,380	17,075
Child Credit	(2,000)
Home Credit		(1,350)
Family Credit		(6,300)
	--------	--------
Tax After Credits	$9,380	$9,425

Taxpayer would have a $45 increase in tax under the new proposal.

Tax increase due to difference between itemized dedunctions and exemptions and family credit	($650)
Tax savings due to charitable contribution deduction	125
Tax savings due to home mortgage interest credit	1,350
Tax increase due to repeal of child credit	(2,000)
Tax increase due to repeal of 10% tax bracket	(730)
Tax savings due to increase in 15% bracket	1,860
	-------
Tax increase under new plan	($45)

Scenario 8

Married couple, with 2 children, $300,000 in income which includes $3,000 in dividend income and $10,000 in long term capital gains from the sale of stock. Taxpayer has $50,000 in itemized deductions, including $5,000 in charitable contributions, $15,000 in state and local taxes, $20,000 mortgage interest on principal residence, $8,000 mortgage interest on vacation home, and $2,000 interest on home equity loan.

	2005 Present Law	Reform Proposal

Wages	287,000	287,000
Dividends	3,000	0
Long term capital gains	10,000	2,500
	-----------	---------
Adjusted Gross Income	300,000	289,500
Itemized Deductions	(45,378)
Personal Exemptions	(4,352)
	-----------	---------
Charitable contribution deduction		(2,105)
Taxable Income	250,270	287,395
Regular Tax	60,841	73,540
Addition due to AMT	679
Home Credit		(3,000)
Family Credit		(6,300)
	-----------	---------
Tax After Credits	$61,520	$64,240

Taxpayer would have a $2,720 increase in tax under the new proposal.

Tax savings due to dividends being exempt from taxation	$450
Tax savings due to 75% capital gain exclusion	675
Tax increase due to difference between itemized deductions and exemptions and family credit	(10,111)
Tax savings due to charitable contribution deduction	695
Tax savings due to home mortgage interest credit	3,000
Tax Savings due to repeal of alternative minimum tax	679
Tax increase due to repeal of 10% tax bracket	(730)
Tax savings due to increase in 15% bracket	1,860
Tax savings due to income taxed at 25% instead of 28%	902
Tax increase due to income taxed at 30% instead of 28%	(656)
Tax savings due to income taxed at 30% instead of 33%	516
	----------
Tax increase under new plan	($2,720)

Scenario 9

	2005 Present Law	Reform Proposal

Wages	287,000	287,000
Dividends	3,000	0
Long term capital gains	10,000	2,500
Taxable employer provided health insurance		3,500
	------------	-----------
Adjusted Gross Income	300,000	293,000
Itemized Deductions	(45,378)
Personal Exemptions	(4,352)
	-----------	----------
Charitable contribution deduction		(2,070)
Taxable Income	250,270	290,930
Regular Tax	60,841	74,707
Addition due to AMT	679
Home Credit		(3,000)
Family Credit		(6,300)
	-----------	-----------
Tax After Credits	$61,520	$65,407

Taxpayer would have a $3,887 increase in tax under the new proposal.

Tax increase due to taxability of health insurance coverage	($1,155)
Tax savings due to dividends being exempt from taxation	450
Tax savings due to 75% capital gain exclusion	675
Tax increase due to difference between itemized deductions and exemptions and family credit.	(10,111)
Tax savings due to charitable contribution deduction	683
Tax savings due to home mortgage interest credit	3,000
Tax savings due to repeal of alternative minimum tax	679
Tax increase due to repeal of 10% tax bracket	(730)
Tax savings due to increase in 15% bracket	1,860
Tax savings due to income taxed at 25% instead of 28%	902
Tax increase due to income taxed at 30% instead of 28%	(656)
Tax savings due to income taxed at 30% instead of 33%	516
	-----------
Tax increase under new plan	($3,887)

Scenario 10

Retired single taxpayer over age 65. Receives $14,000 of Social Security benefits and a pension of $20,000.

	2005 Present Law	Reform Proposal

Pension Income	20,000	20,000
Taxable Social Security Benefits	1,000	6,000
	--------	--------
Adjusted Gross Income	21,000	26,000
Standard Deduction	6,250
Personal Exemptions	3,200
	----------	----------
Taxable Income	11,550	26,000
Regular Tax	1,368	3,900
Family Credit		(1,650)
	--------	--------
Tax After Credits	$1,368	$2,250

Taxpayer would have an $882 increase in tax under the new proposal.

Tax savings due to difference between standard deduction, and exemption and family credit	$233
Tax increase due to increase in amount of taxable social security	(750)
Tax increase due to repeal of 10% tax bracket	(365)
	---------
Tax increase under new plan	($882)